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Accounting Information Systems, 6th edition James A.

Hall

COPYRIGHT © 2009 South-Western, a division of Cengage Learning. Cengage Learning and South-Western are trademarks used herein under license

Objectives for Chapter 13
• Identify the key stages in the SDLC • How a firm’s business strategy shapes its information system • The relationship between strategic systems planning and legacy systems • What transpires during systems analysis • The TELOS model for assessing project feasibility • Cost-benefit analysis issues related to information systems projects • The role of accountants in the SDLC

The Systems Development Life Cycle (SDLC)
 A logical sequence of activities used to:  identify new systems needs  develop new systems to support those needs  A model for reducing risk through planning, execution,

control, and documentation  The SDLC model may be shown in five stages.
 We’ll look at the first two in this chapter and the

remaining three in chapter 14.

Systems Development Life Cycle
Business Needs and Strategy Legacy Situation
Business Requirements

1. Systems Strategy
- Assessment - Develop Strategic Plan

Feedback: User requests for New Systems

System Interfaces, Architecture and User Requirements

High Priority Proposals undergo Additional Study and Development

2. Project Initiation
- Feasibility Study - Analysis - Conceptual Design - Cost/Benefit Analysis

Selected System Proposals go forward for Detailed Design

Feedback: User requests for System Improvements and Support

3. In-house Development
- Construct - Deliver

4. Commercial Packages
- Configure - Test - Roll-out

New and Revised Systems Enter into Production

5. Maintenance & Support
- User help desk - Configuration Management - Risk Management & Security

Systems Strategy  understand the strategic needs of the organization  examine the organization’s mission statement  analyze competitive pressures on the firm  examine current and anticipated market conditions  consider the information systems’ implications pertaining to legacy systems  consider concerns registered through user feedback  produce a strategic plan for meeting these various and complex needs  produce a timetable for implementation .Overview of Phases 1 and 2  Phase 1 .

Overview of Phases 1 and 2  Phase 2 .Project Initiation  assess systems proposals for consistency with the strategic     systems plan evaluate feasibility and cost-benefit characteristics of proposals consider alternative conceptual designs select a design to enter the construct phase of the SDLC examine whether the proposal will require in-house development. a commercial package. or both .

Systems Development Participants  Systems Professionals: analyze problems in current systems and formulate solutions  systems analysts  systems designers  programmers  End Users: primary users of the system  addressing their needs is critical to success  Stakeholders: individuals who have an interest in the system but are not end users .

and internal auditors  Typical responsibilities:  provide guidance  resolve conflicts  review projects and assigning priorities  budget and allocate funds  review the status of projects  determine whether projects should be continued . senior management from user areas and computer services.Systems Steering Committee  Usually includes the CEO. CIO. CFO.

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Assessing Strategic Information Needs  Strategic systems planning involves the allocation of resources at the macro level.  usually a time frame of three to five years  Key inputs in developing a sound systems strategy include:  strategic business needs of the organization  situations involving legacy systems  end user feedback .

products/services. which has shaped the organization’s business strategy  Industry and competency analysis  industry analysis: the driving forces that affect the industry and their organization’s performance. and potential opportunities  competency analysis: a complete picture of the organization’s effectiveness as seen via four strategic filters: resources. significant risks. such as important trends. infrastructure. and customers .Strategic Business Needs  Vision and mission  systems strategy requires an understanding of top management’s vision.

Legacy Systems Use legacy components to help develop an architecture description. .

pertains to substantial perceived problems rather than minor systems modifications  Has five key phases at this point in the SDLC:  recognize problems  define problems  specify systems objectives  determine feasibility and contributions of projects  may entail prioritizing individual projects  preparing a formal project proposal .End User Feedback  Identifying user needs is fundamental to everything else  During phase 1.

responds to problems only when they reach a crisis state  proactive management .  The point at which the problem is recognized is often a function of management’s philosophy.  Symptoms may seem vague and innocuous or go unrecognized initially. improved information system is manifested through various symptoms.End User Feedback: Recognizing the Problem  The need for a new.  reactive management .alert to subtle signs of problems and aggressively looks for ways to improve .

 The next three stages of the end user feedback process involve this interactive process.End User Feedback: Defining the Problem  Managers and end users should…  avoid leaping to a single definition of a problem  keep an open mind and gather facts before deciding  learn to intelligently interact with systems professionals  An interactive process between managers/end users and systems professionals is necessary to arrive at an accurate problem definition. .

the objectives only need to be defined in general terms.End User Feedback: Specifying System Objectives  The strategic objectives of the firm and the operational objectives of the information systems must be compatible. .  At this point.

can procedural changes be made to make the system work?  Schedule feasibility .does the system fall within legal boundaries?  Operational feasibility .End User Feedback: Preliminary Project Feasibility-TELOS  Technical feasibility .can the project be completed by an acceptable time period? .are the funds available and appropriate for the system?  Legal feasibility .is the technology necessary available?  Economic feasibility .

 It outlines the linkage between the objectives of the proposed system and the business objectives of the firm.End User Feedback: Preparing a Formal Project Proposal  A systems project proposal provides management with a basis for deciding whether or not to proceed with the project. .  It summarizes the findings of the study and makes a general recommendation.

Strategic Systems Plan  After collecting input.  Assessing each potential project’s:  benefits  costs  strategic impact  Development will proceed on proposals with the greatest potential for supporting the organization’s business objectives at the lowest cost. . the steering committee and systems professionals evaluate the pros and cons of each proposal.

Costs.Relationship between Benefits. and Strategic Impact .

 The BSC recommends viewing an organization using four perspectives:  learning and growth  internal business process  customer  financial .Create an Action Plan: the Balanced Scorecard  The next step is to translate strategy into action  Many companies have found the balanced scorecard (BSC) a useful tool for this step.

. Concentrate only on critical success factors to which everyone in the organization will pay attention.The Balanced Scorecard Primary objective: capture information on orthogonal dimensions that are important to every organization financial: how do we look to our shareholders? customer: how do we look to our customers? internal business process: what must we excel at? learning and growth: can we continue to improve? Second objective: prevent the proliferation of reports and information.

BSC for On-Line Banking .

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or both . a commercial package.Project Initiation  The second phase in SDLC involves:  understanding of users’ needs and problems  proposing multiple alternative solutions  assessing alternatives in terms of feasibility and cost-benefit characteristics  selecting the best option and proceeding to the construct phase  examining whether the selected option will require in-house development.

Systems Analysis  A business problem must be fully understood before a solution can be formulated.  System analysis is a two-step process  survey of current systems  analysis of users’ needs .  A defective analysis will lead to a defective solution.

Survey of Current Systems  Advantages:  allows aspects of the old system which should be kept to be identified  aids in planning the implementation of the new system  may allow conclusive determination of the cause of the reported problem symptoms  Disadvantages:  the current physical tar pit  can stifle new ideas .

especially audit trails transaction volumes error rates resource costs bottlenecks and redundant operations . participating. and reviewing documents.The Survey Step  Fact-gathering techniques include observing. interviewing.  Facts must be gathered regarding:          data sources and data stores users processes data flows controls.

The Analysis Step  Systems analysis is an intellectual process that is commingled with fact gathering. contains:  reasons for system analysis  scope of study  problem identified with current system  statement of user requirements  resource implications  recommendations .  A formal systems analysis report. prepared and presented to the steering committee.

The Conceptualization Phase  Purpose: produce alternative conceptual solutions that satisfy the requirements identified during systems analysis  How much detail?  enough to highlight the differences between critical features of competing systems rather than their similarities .

Alternative Conceptual Designs for a Purchasing System .

Systems Evaluation and Selection  A critical juncture in the SDLC  a formal mechanism for selecting the one system from the set of alternative conceptual designs that will go forward for construction  an optimization process that seeks to identify the best system  a structured decision-making process that reduces uncertainty and risk .

The Role of Accountants  Accountants ensure that the following are considered during evaluation and selection:  only escapable costs are used in calculations of cost     savings benefits reasonable interest rates are used in measuring present values of cash flows one-time and recurring costs are completely and accurately reported realistic useful lives are used in comparing competing projects intangible benefits are assigned reasonable financial values .

but now more detailed and oriented to deciding on a specific system design.Detailed Feasibility Study  Similar to the preliminary project feasibility analysis (TELOS). Examine:  technical feasibility  economic feasibility  legal feasibility  operational feasibility  schedule feasibility .

Cost-Benefit Analysis: Identify Costs .

Cost-Benefit Analysis: Identify Benefits—Tangible .

Cost-Benefit Analysis: Identify Benefits—Intangible .

 Payback Method: do break-even analysis of total costs (one- time costs plus present value of recurring costs) and total benefits (present value of benefits).  The optimal choice is the project with the greatest net present value. the system earns future profits. . After the break-even point.Comparing Costs and Benefits  Two methods commonly used for evaluating the costs and benefits of information systems:  Net Present Value Method: deduct the present value of costs from the present value of benefits over the life of the project.  The optimal choice is the project with the greatest future profits.

of a commercial system to meet the organization’s unique needs . to varying degrees.How Should We Get the System?  Once the optimal system is selected. decide how to acquire it:  develop the system in-house: best for systems that need to meet unique and proprietary business needs  purchase commercial software: best for systems that are expected to support “best industry practices”  a mix of the first two approaches: make in-house modifications.

are more likely to cooperate with the project.  All end users need to be made to understand the objectives of the new system.  End user support is critical to success. . rather than a threat.Announcing the New System Project…  can be the most delicate aspect of the SDLC.  End users and managers who view the new system as a potential benefit to their jobs.

 The quality of accounting information systems and their output rests directly on the SDLC activities that produce them.Why are Accountants Involved with SDLC?  The creation of an information system consumes significant resources and has financial resource implications. .

How are Accountants Involved with SDLC?  As end users who must provide a clear picture of their problems and needs  As members of the development team  As auditors who must ensure that the system is designed with appropriate internal controls and computer audit techniques. .

and ineffective systems.  Careful systems planning is a cost-effective way to reduce the risk of creating unneeded.The Accountant’s Role in Systems Strategy  Auditors should routinely review the organization’s systems strategy.  Both internal and external auditors have vested interests in this outcome. . inefficient. unwanted.

exposing the organization to potential financial loss.  If important accounting considerations are not conceptualized at this point. .The Accountant’s Role in Conceptual Design  Accountants should be responsible for the conceptual system…  and the systems professionals for the physical system. they may be overlooked.  The auditability of a system depends in part on its design characteristics.

recurring costs are accurately reported use realistic useful lives in comparing competing projects intangible benefits are assigned reasonable financial values .The Accountant’s Role in Systems Selection  Economic feasibility is a primary concern to accountants. Accountants should ensure that:  use only escapable costs in calculations of cost-savings     benefits use reasonable interest rates in measuring present values of cash flows one-time v.